Average household debt continues dropping

Looking for encouraging news on the economic front? The level of debt we carry for every dollar we make is moving in the right direction.

In hindsight, the financial train-wreck of the last five years was as obvious as it could have been. Starting 15 years ago, we as a nation began piling on astronomical levels of debt. Not everyone of course, but it was the common trend around the nation.

If you go back to from early to mid-last decade, Americans kept doing cash-out refinances on their homes. As real estate values artificially skyrocketed, people pulled out cash from their homes like they were ATMS.

At the same time, you also had home equity lines of credit (HELOCs) that were known as 125s, where lenders would lend you home equity up to 25% above your home's value. Then you go back to fall of 2001 and that was the start of the ultra-long car loans at 0%. And I don't even have to tell you about credit cards that were handed out like candy.

Before long, Americans carried debt of $1.36 for each dollar we made. Historically, that debt had been more like 65 cents on every dollar of income.

Debt levels moving in the right direction

How are we doing more than five years on through the Great Recession? I'm happy to report the average debt has fallen to $1.08 on each dollar we make.

Meanwhile, interest rates are so low compared to what they usually are. So what we pay each month to deal with the $1.08 of debt is favorable. Think of it like a temporary payment holiday through this cycle, where the Federal Reserve has signaled they will artificially hold down interest rates for the next few years.

If you're carrying a lot of debt, take this as an opportunity to use these low interest rates to keep paying down your debt. Then when rates start to rise again, you won't be wheezing financially as you did in the past.

People have approached this all different ways. Some who went through the hardship of the last five years may have completely eliminated debt from their lives or they're almost there. Once bitten, twice shy. However, others won't change their debt habits and that's just part of life.

Just remember this: The best way to reduce anxiety in life is to reduce how much debt you carry.

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Clark Howard is a consumer expert whose goal is to help you keep more of the money you make. His national radio show and website show you ways to put more money in your pocket, with advice you can trust. View More Articles